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Exercise 7-21B Complete the accounting cycle using long-term asset transactions (LO7-4, 7-7)

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Exercise 7-21B Part 1

1. Record each of the transactions listed above. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

[The following information applies to the questions displayed below.]
  
On January 1, Year 1, the general ledger of a company includes the following account balances:
  

Accounts	Debit				Credit
Cash	$	59,100
Accounts Receivable		25,800
Allowance for Uncollectible Accounts					$	2,600
Inventory		36,700
Notes Receivable (5%, due in 2 years)		16,800
Land		159,000
Accounts Payable						15,200
Common Stock						224,000
Retained Earnings						55,600
Totals	$	297,400			$	297,400

  
During January Year 1, the following transactions occur:
  

January		1		Purchase equipment for $19,900. The company estimates a residual value of $1,900 and a five-year service life.
January		4		Pay cash on accounts payable, $9,900.
January		8		Purchase additional inventory on account, $86,900.
January		15		Receive cash on accounts receivable, $22,400.
January		19		Pay cash for salaries, $30,200.
January		28		Pay cash for January utilities, $16,900.
January		30		Sales for January total $224,000. All of these sales are on account. The cost of the units sold is $117,000.

Information for adjusting entries:

1. Depreciation on the equipment for the month of January is calculated using the straight-line method.
2. The company estimates future uncollectible accounts. The company determines $3,400 of accounts receivable on January 31 are past due, and 50% of these accounts are estimated to be uncollectible. The remaining accounts receivable on January 31 are not past due, and 3% of these accounts are estimated to be uncollectible. (Hint: Use the January 31 accounts receivable balance calculated in the general ledger.)
3. Accrued interest revenue on notes receivable for January.
4. Unpaid salaries at the end of January are $33,000.
5. Accrued income taxes at the end of January are $9,400.

6. Exercise 7-21B Part 1

   1. Record each of the transactions listed above. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Adjusting Entries Working Notes:

a. Depreciation

Depredciation = (19,900 - 1900)/5 = $3600

b. Uncollectible Accounts

50% of the $ 3400 that the company considers uncollectible and past due would be: 3400 x 0.5 = $ 1700Those that remain pending receivable that are not yet due would be 3% of the difference between 3400 - 1700 = $ 1700, that would be as follows: 1700 x 0.03 = $ 51
So, uncollectible accounts would amount: $ 1700 + $ 51 = $ 1751.

c. Accrued Interest Revenue = 5% * 16800 = $840